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Vaults are the center of the Alchemix protocol. The Alchemist.sol contract powers the Vaults. This is how it works for our initial version using DAI and our synthetic stablecoin, alUSD:
- 1.Deposit DAI into the vault.
- 2.Borrow alUSD up to 50% in amount of deposited collateral. Loans will have a absolute minimum 200% collateralisation ratio.
- 3.Deposited DAI is deposited into the yearn.finance yDAI Vault.
- 4.Yield is harvested from the yDAI Vault tokens.
- 5.Harvested yield pays down the global debt in the system, reducing all depositor's debt. If you have deposited DAI but not borrowed alUSD, the yield will increase your alUSD borrow limit.
- 6.Once the harvested yield has reduced the global debt, it is transferred to the Transmuter Contract.
- 7.Users can withdraw deposits in amount up to reaching the 200% collateralisation ratio. So as the protocol pays down your debt, you can withdraw more DAI.
- 8.At any time you can repay a portion or all of your debt in order to unlock your collateral. DAI and alUSD are treated 1:1 for repayment and liquidation. As such, you can repay your alUSD debt with alUSD and/or DAI. Repaying debt with alUSD is also a pegging mechanism because if alUSD were to be under the peg, users could buy it from AMMs and pay off their debt at a discount.
- 9.At any time, you can liquidate a portion or all of your collateral. The contract will repay your alUSD debt using the DAI from your collateral.
Essentially, the vaults give users a flexible line of credit for their future yield. Users can enter and exit anytime without committing to long lockups. There will never be a liquidation of a user's collateral unless they do it themselves because your debt will only ever go down. Shortly after launch, more stablecoins will be added as collateral in order to borrow alUSD.
We value the safety of users' deposits more highly than anything else. It is the main reason we chose yearn.finance as our yield aggregator. While Alchemix will undergo security reviews and audits, there is no guarantee that something bad won't happen.Vaults have an emergency shutdown procedure in such a case. If this procedure is initialized, then all funds will be withdrawn from yearn.finance, deposits will be paused, and users can pay down their debt and exit the system safely, hopefully preventing or mitigating any losses. Two additional security measures exist to protect the Alchemical synthetic tokens. First, there is a limit for how much alUSD can be minted from each asset. This limit depends on the level of technical, market, and legal risk for a given asset. Second, Alchemix will use Chainlink oracle price feeds. If a stablecoin's value is under a certain threshold, minting, repaying with the base asset, and liquidations will be paused until it's value is back to acceptable levels. These security measures will not completely prevent the damage from a stablecoin losing its peg or becoming devalued, but it will protect much of the Alchemical synthetic token's value .